When a device is deployed as a company owned work profile (COPE) or personally owned work profile (BYOD) device, a secondary profile is created on the device known as a work profile. This is where all corporate apps and data reside on the device, and is fully isolated and separately encrypted on the device.
Unless explicitly set, the work profile doesn't have any additional authentication required, allowing an end-user to open work applications on the device as desired.
A work challenge is what Google call the password applied to the work profile that shares most of the same policies associated with a device password policy. It can be applied in the following ways:
Here's an example of a work challenge policy requiring a unique password on a device:
Note the scope above is set to Profile (as in, the work profile). This sets a work profile-specific password policy that has no impact on the parent policy directly.
I say directly, because unless a policy is set mandating a separate work and personal password as pictured above, the end user is able to adopt the work profile password as the device password also, through the device setting Use one lock.
By mandating separate profile passwords, this avoids that.